Technical Analysis

Technical Analysis of 5 selected Automobile stocks listed in BSE

Chapter I
Introduction

1.1 General

Over the past three years, India has become a favored destination for international investors. India growth story led the stock market index to new heights in these years .The worlds second largest population has enough skilled young labour force to fuel this growth .Now India has second highest growth rate behind China . BSE SENSEX has grown from 6500 to 14500 in just two years. The screen based trading system and dematerialization of shares revolutionized the Indian stock market. Many companies came with IPOs to accumulate huge amounts. RPL, DLF, ICICI are some among them. FIIs dumped huge funds in the Indian stock market. The liquidity improved a lot. The prices of many Indian stocks are higher than their intrinsic value. The psychological and emotional factors are playing high in the Indian stock market. Hence the relevance of technical analysis is very high

1.2 Title of the study

Technical Analysis of 5 selected Automobile stocks listed in BSE

1.3 Statement of the problem

The stock prices moves in trends and cycles. It depends upon the demand and supply forces. This study tries to find out the trends in the stock prices of Bajaj Auto, Asok Leyland, Mahindra and Mahindra, Tata motors and Hero Honda and to help investor to take right investment decisions using mathematical indicators of technical analysis

1.4 Objectives of the study

1. To study stock price movements using Mathematical indicators , Charts etc

2. To conduct technical analysis in selected automobile stocks

3. To find the entry and exit level in the stock prices and to find the ways of maximizing the wealth.

1.5 Scope of the study

The scope of study is limited to Bombay stock Exchange (BSE) and Indian Economic conditions. The study is limited to automobile sector. Only mathematical indicators are used in this study.

1.6 Methodology of study

Five stocks are selected from Automobile industry. The criteria for selection of the stocks are 1) availability of secondary data from 1992 onwards 2) highest market capitalization.3) Listed in Bombay stock exchange. The collection of data and the preliminary work of this minor project is done with the help of the research wing of “Share wealth securities limited”, a Thrissur based stock broker. The analysis of the data is done using Microsoft excel software .The charts are prepared using the built in features of Excel. Only secondary data is used for analysis. The interpretations are done using the following mathematical indicators

1. Simple Moving Average (SMA or MA)

2. Exponential Moving Average (EMA)

3. Relative Strength Index (RSI)

4. Rate of Change (ROC)

5. Moving Average Convergence Divergence (MACD)

1.7 Limitations of the Study

1 The study is limited to five stocks only

2 All are from automobile sector

3 Only stocks from BSE are used

4 Analysis is done using Mathematical indicators only

1.8 Study of the Literature

Many studies are conducted in the field of technical analysis. Different researchers used different combination of tools, charts and methods in their study. Mathematical indicators like Moving averages, ROC, RSI, MACD etc are used in this study.

1.9 About technical analysis.

Technical analysis and fundamental analysis are the two main schools of thought in the financial markets. As mentioned earlier, technical analysis looks at the price movement of a security and uses this data to predict its future price movements. Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals. The principles of technical analysis derive from the observation of financial markets over hundreds of years. The oldest known branch of technical analysis is the use of candlestick techniques by Japanese traders as early as the 18th century, and still now one of the main charting tools. Munehisa Homma, a successful rice trader in 18th century Japan, wrote the first book on technical analysis. He addressed the market's bullish and bearish cycles, and said that successful trading depends on understanding market psychology. Dow Theory is based on the collected writings of Dow Jones co-founder and editor Charles Dow, and inspired the use and development of modern technical analysis from the end of the 19th century. Modern technical analysis considers Dow Theory its cornerstone. Many more technical tools and theories have been developed and enhanced in recent decades, with an increasing emphasis on computer-assisted techniques. Technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. By understanding the merits and limitations of technical analysis, an investor will get a new set of tools or skills that will enable him to trade in the stock market in a better way.

1.10 About auto sector

Indian Automobile industry is a sector to watch. Companies in this sector have been expanding their capacities in recent years. The surge in expansions has been necessitated due to the increase in demand from domestic market. Our demography and the increase in the disposable income of the middle class contributed a lot to this. The banks also supported this with low interest rates for a long time, though recent hike in interest rates will have some negative impact. As the inflation is coming down, the interest rates also may come down. Several companies are expanding their product portfolio to fuel the growth. Many firms have their own financial companies as their subsidiaries to give loan to their vehicles. Automobile component industry has huge orders from global suppliers. Several automobile companies are expanding their manufacturing bases by acquiring global suppliers in western countries like the US, the UK, Germany and setting up Greenfield projects in low cost countries. Indian companies like Sona Koyo, Rane Engines Valves, Automotive Axles, and Sundaram Fasteners are making India, the world leaders of automobile component industry. The leadership in automobile component industry will help the Indian Automobile industry in becoming the world leaders in the near future.

1.12 About BSE,

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

1.13 About Share wealth.

Share wealth Securities Ltd is the first corporate member of National Stock Exchange of India Ltd from THRISSUR, the Cultural Capital of Kerala. Share wealth is also a Depository Participant with CDSL (Central Depository Services (India) Ltd).Share wealth Securities Ltd has two group companies, Share wealth Commodities Pvt Ltd (Member: MCX-Multi Commodity Exchange Ltd) & Share wealth Financial Services Ltd (AMFI Registered Mutual Fund Distributor)Registered offices of Share wealth Group of companies are at Thrissur. Share wealth group of companies (Share wealth) is promoted by a group of financial market professionals having more than 20 years of experience in Financial Markets, and various professional dignitaries from different fields of entrepreneurship